As part of the steady drip, drip, drip of information to prepare the world for the shock announcement they are to make in november that we're running out of oil, Fatih Birol is giving an interview to Foreign Policy where he repeats a number of things we've been discussing here endlessly: that demand in growing, but that the West is irrelevant in that respect, that supply is constrained, that major oil fields are declining, and that the Western oil companies are running out of oil.

But I'd like to focus on just one point here:

FP: Why arenít more new supplies coming online, given the current high prices?

FB: The bulk of the oil has in the past been produced by the international oil companies, so-called Big Oil. But their existing reserves are declining in what they have under ownership. They have no access to new reserves, the bulk of which are in Middle East countries. In most of these countries, only the national oil company can, by law, invest. So, even though the international oil companies may have the capital and the technology, they donít have access to the reserves. Therefore, the bulk of the growth in the future needs to come from the national oil companies, and perhaps price will no longer be the main determinant when they make their [production] decisions, because for many countries, oil is their only natural endowment. And those countries legitimately value and want to leave their one and only natural endowment for future generations.

He is essentially saying that market forces are playing a very small role on one side of the equation: supply will not respond to higher prices. Which means that demand will have to bear the burden of balancing the market. Which in turn means that if you rely only on market mechanisms, prices will need to go high enough to cause demand destruction through pain and economic dislocation.

The only conclusion to reach is that we must act on demand levels without relying only on price mechanisms - policy should explicitly target demand reduction in every possible way, including mandatorily if requires.

In fact, an indirect market mechanism might do the trick: allocate a steadily shrinking number of barrels of oil to each citizen each year, and let them use them or trade them for oil products.

That depends how many troops you're willing to provide to secure and defend. Don't forget that, from a purely military point of view, part of the Iraqi fuck-up was that insufficient forces have always been made available. Actually, if you just moved all forces to the oil rich regions you could probably secure them anyway.

But it can't work: Iraq and Nigeria have shown that the oil extraction and export infrastructure requires a stable security situation.

But that won't keep them from trying.

Also, new tactics: The massive clearing of populations (genocide) so that obstacles to stability are removed (by mass-killing them). There are several ways to do this. Right now, the Israeli model is favored.

It can't work. But it will be tried anyway.

The American addiction to oil is worse than any drug habit. Crack cocaine is nothing.

The other possibility is this: fuck with them and turn them into banana republics. Grease them, and let the powerful get fat, because the only other option for the powerful is sharing the wealth with fellow citizens.

Are they greedy or are they nationalists?

A well-run country in the oil rich regions means the market for oil is controlled by the people.

And we don't want that, do we?

Isn't the description of a national oil company a bit contradictory when we know who controls them?

I've said before my nightmare scenario is one in which the US becomes a serial killer of countries, turning one after another into failed states (easy to do with air strikes) and moving on... Reconstruction is much more difficult even if there's the will to undertake it.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

I have similar dark thoughts. I read about the terms of the "secret deal" --the SOFA agreement that the empire is trying to ram down the throats of the US congress and the Vichy Iraq government-- and I wonder if Iraq will be object lesson enough to whip the rest of the region into obedience. I doubt it.
In fact, the murder of Iraq, and the latest travesty--60 bases (for Iraqi local security, of course) may just act in the opposite direction, and illustrate the risk, and the cost of knuckling under.
Yet somehow Brown just can't see the role that the boyz have planned for him and his--

Best case is living off U.S. table scraps, I think.
So far they have given the UK nothing but a partner in self-deception. And perhaps that's too demeaning a role for even the post-Blair flakes.

No, it will fail without tactical nukes, because even conventional air power is too costly for the US now, and too vulnerable.

Reconstruction is much more difficult even if there's the will to undertake it.

Why rebuild? They'll just use up the oil, if they have money.

Capitalism searches out the darkest corners of human potential, and mainlines them.

There is this obsession with Toyota cars, but the fuel consumption seems not to be that extraordinary at all. Quick search reveals something like 4.5 l/100km. My mother drives a 14 year old passat combi, usually she needs about 5 l/100km diesel, when driving carefully.
A new polo blue motion consumes 3.8 l/100km according to auto news.
The reason why European car makers don't make more low-consumption cars, is that those low-consumption cars, which they do make, are not often bought. Just because they make heavy cars, too, there low-consumption cars are not good?

PSA Peugeot Citroën and Mitsubishi are due to announce an agreement to co-operate on power­trains for electric cars.

The French and Japanese carmakers will sign a letter of intent to investigate, develop, produce, and use motors, inverters and other components for electric cars, according to two people familiar with the plan.

Europe's second largest carmaker will complete a feasibility study on production of the vehicles by the end of the year. The company is talking to several possible suppliers of batteries.

Almost like one feels like looking at buying shares in the company, which has had a very bad development of its share prices for the last few years, and which is looking both cheap and adpated to a future with high oil prices and a more important Asia.

But I can't shop at the Paris exchange from my bank, and PSA is not dual listed at NYSE. Sob, sob.

It's a recent trend (pushed by activist hedging funds) that controlling shareholders are not liked by the market. Until not so long ago, they (and especially family controlling stakes) were seen as a sign of forward-looking, long-term-caring investors.

From what I've heard (occasional listening to French radio) over a week's holiday, not one of the Serious People wants to say this.

It's all been about the problem of speculation and oil-producing countries withholding to make prices rise further. Along with some fancy footwork on why markets are more complicated than the same pundits always used to say they were.

Resource owners basing their supply decisions on expected future prices have two issues to deal with. First, they have to keep their current revenue up to a level that they can do what they wish at present. Second, they have to have a model of what future prices will look like.

Apparently some of the oil producers have decided that leaving resources in the ground now is acceptable since their current revenue stream is "adequate". This is, of course, false, but is a result of the highly imbalanced distribution of oil fields within the Middle East. I did a calculation about how uneven this was in one of my essays (just look at the table at the end).

The relevant measure is barrels per capita which ranges from about 1 for Qatar to .01 for Egypt. So the artificial political borders and the repressive regimes create huge wealth disparities between states and within them as well.

As usual Bush was right, it's just that you have to reverse what he says. When he says "they hate us for our freedoms" the "they" isn't the disaffected population, it is the oligarchs who own all the wealth. It would be interesting to correlate my derived figure with other measures such as the GINI coefficient and median income/wealth on a purchasing power basis.

All of the presumed radicalism of the Middle East and parts of Africa can be understood when these fundamental inequalities are examined. The "freedoms" that the US has are the freedom to escape one's inherited social class - a thing which is impossible in a place like Saudi Arabia.

So the calculation of how much revenue to defer is being based upon what is best for the plutocrats, not the population.

Second, the future demand for oil depends not only on projected economic activity, but on the existence of rival technologies. We can discuss why existing alternative technologies are being underdeveloped, with explanations ranging from conspiracies by oil firms, to incompetence by political leaders, to ignorance, but it is clear that the oil producers don't think this will be a significant factor in their projections.

Similarly reducing demand will only happen gradually since the needed changes are so vast that they can only be implemented slowly. If it were mandated, for example, that all private vehicles get X mpg within, say 10 years, the auto industry couldn't produce them fast enough to meet the requirement. Similar mandates concerning coal-fired plants, etc. will take decades as well. So demand reduction will happen slowly. It doesn't have to be as slow as at present, but it will still be slow enough for the oil states to make plans.

What can change rapidly is expectations. Expectations are based upon hopes and fears, not data, that's how we get bubbles.

I've long been a proponent of a much higher level of fusion research, on the order of $100+ billion per year spread out of many institutions and hundreds of scientific projects. The basic physics is still poorly understood and the two big schools of thought have already moved into an engineering phase before all the fundamental mechanisms are understood. Even if 99% of all projects fail, the effort would be a success, we only need one to work.

The benefit of such a commitment would be two-fold. First, we really need to do the science and second, it would change the projections of the oil states. If there is a chance that "electricity too cheap to meter" could become a reality in 50 years then how much oil to leave in the ground becomes a much more difficult problem and might change current behavior.

Sorry, Jerome, it might also affect the willingness to invest in wind farms, but I don't think as much since planned or anticipated wind projects would probably be reaching their lifespan by the time fusion generation would be a significant alternative.

To summarize: to fix present oil supply and pricing problems requires a restructuring of the feudal social order in the oil producing states and a real commitment to alternative energy R&D.

The only people who know the real situation with oil reserves seem to be the Saudi's. I'm guessing that they're decided that between peak oil and climate change that there's no point keeping prices down any more: the shift from an oil based economy is inevitable. So they might as well milk the addicts for as long as we're addicted.

So the calculation of how much revenue to defer is being based upon what is best for the plutocrats, not the population.

And plutocrats know that one thing 100% in an armed invasion is that they will lose power, so they probably have a bigger incentive to not piss off the USA than elected, legitimate government (cf for instance how Russian Venezuela, Iran behavs vs Saudi Arabia).

the future demand for oil depends not only on projected economic activity, but on the existence of rival technologies.

I'd add within the infrastructure that we've built
Public transport like light rail is certainly competitive, but not when the infrasturcture needs to be built from scratch vs existing roads.

And gasoline does have a physical advantage which is hard to replicate: a dense, easily transported, versatile energy content.

If it were mandated, for example, that all private vehicles get X mpg within, say 10 years, the auto industry couldn't produce them fast enough to meet the requirement. Similar mandates concerning coal-fired plants, etc. will take decades as well.

That's patently untrue. If you said that only cars with 100mpg were legal for sale in 5 years, it would happen because (i) it is easily doable (see the Volkswagen Lupo, which is an actual car already on sale and that goes 80mpg) and (ii) manufacturers will follow the law, once it's the law (they will lobby against it before, of course).

As to fusion, it's been 40 years away for the past 60 years, so I'm not holding my breath. We should certianly finance research (that's what ITER does, btw), but not put too much hope on it yet.

As I understand it, there needs to be a fundamental breakthrough in Applied Science before fusion can be turned practical. As a R&D kinda guy I would certainly fund such research but wouldn't count on it. Those things happen when they happen and (almost) always as a stroke of luck.

The nice thing, tho', is deploying the technology we have now can go a long way towards solving a number of problems and should fusion come to pass it would be icing on the cake.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre

There were about 135 million registered passenger cars in the US in 2005. The US production of all vehicles seems to have been about 12 million in 2006 (only about 40% cars). If we assume that the factories could retool so that all production was shifted to the newer generation of autos and production was increased to, say, 20 million per year, it would still take 7-10 years to change over.

Of course, this is unrealistic, since production would not be diverted exclusively to autos, several years would be needed for R&D and refitting of factories, and then there is the small question of who is going to buy all these new cars, how they going to afford it, what is to be done with all the old vehicles and where the raw materials are going to come from.

Let's say our new technology transition effort these days in producing a shift of 1-2% in the overall mix of energy sources per year, then going to 10-20% within a decade sounds difficult, but possible. Right now this type of push is not under consideration by any political entity, that's why they set goals so far in the future that they don't have to do anything now. If getting to 10% has been thwarted for at least a decade what makes us think that the situation will change now? Even high oil prices have not produced any meaningful discussions (outside of the blogosphere, that is).

I suggested on The Oil Drum today that those who are fed up with the kind of weak ideas discussed by people like Andris Piebalgs pretend to put themselves in his place and explain what they would do. There haven't been too many takers yet, perhaps we could start a thread like that here.

"If you were in a position of (limited) authority, what policies would you put into place?" They have to be realistic in terms of practicality (no ideas like forcing everyone to switch to bicycles) and have to be politically implementable.

Anyone like to start such a topic?

As for fusion R&D. $100 billion per year is not a large sum of money. The US is spending about $10 billion per month on Iraq alone, so the world can certainly afford it.

The thing about R&D is that you won't discover anything if you don't look. Furthermore even if you are looking for X, you may find Y which has other important repercussions. Serendipity plays a big part in basic science. If you are upset about the narrow focus of just fusion research then broaden it. I would like to see work done on superconductivity, energy storage and several other areas that interrelate.

The basic problem is that the world is standing still for all intents and purposes. Jerome may be doing good work, but he can't get much done alone.

ok, there's two things: changing what's been produced, and what's being driven. My comment was about what's produced; I'll stipulate that it would indeed take quite a bit more time to change the whole fleet.

"If you were in a position of (limited) authority, what policies would you put into place?" They have to be realistic in terms of practicality (no ideas like forcing everyone to switch to bicycles) and have to be politically implementable.

As you well know, "politically implementable" is the biggest impediment to doing anything on that topic, given that what's needed is to lose, as I wrote above, a sense of entitlement and that's a political non-starter.

But Energize America was an attempt at "politically implementable policy, yes.

Let's say our new technology transition effort these days in producing a shift of 1-2% in the overall mix of energy sources per year, then going to 10-20% within a decade sounds difficult, but possible. Right now this type of push is not under consideration by any political entity, that's why they set goals so far in the future that they don't have to do anything now. If getting to 10% has been thwarted for at least a decade what makes us think that the situation will change now? Even high oil prices have not produced any meaningful discussions (outside of the blogosphere, that is).

That's what really frustrates me about government targets. It's so much easier to get a "20% in 20 years" target agreed by everyone than "1% per year starting now". The former is useless.

When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done. — John M. Keynes

Jerome, your proposal for rationing along with legal trading is an excellent one. By preempting the inevitable black market with a "green market," you remove some of the social tension arising from such a step.

We would soon be seeing heavily armed convoys surrounding gasoline tanker trucks, but I suppose that is going to happen no matter what we do.

Under your type of rationing, people would be able to make money simply by not using fuel. That might render such a plan more palatable within the fantasy-based USA propaganda system.

Administration and record-keeping for such a rationing system would have to be planned very carefully. Paper coupons, or some other physical token, will have to be considered as a method of verifying eligibility to receive a ration. To avoid a tech-support nightmare, the rations system must be built using existing, well-tested technology. Maybe special credit cards, good only for purchase of petroleum products, could be issued.

Of course the incentive to create false credentials would be huge.

How long will it take for the US to waken from its half-century TV-induced slumber and adopt such a sensible system?

Like many other decisions we face, that one is tied to the grotesque media domination by "conservative" (hah!) interests. I reiterate that until we solve the US media problem, we solve nothing.

This is the most politically feasible and the only solution so far put forward that could actually help. I think that large numbers of Americans would accept the idea that, due to resource limitations and locations, a genuine market for oil no longer exists. In this case why should we allow profiteering. It is exactly like a 20th century wartime situation. It could be sold under that formulation.

I say could as it is necessary for this message to be effectively delivered to the population on a level they can comprehend. That will require the cooperation of at least parts of the MSM. That's where things get problematic. The ideal salesperson would be the new POTUS. Better beef up and re-screen the Secret Service.